U.S.-based drilling oil and gas wells company, Carrizo Oil & Gas Inc. (NASDAQ: CRZO) seems to be ready for a price correction in the near term according to its latest charts.
#1 Rising Wedge Pattern: The daily chart shows that the stock has been forming a rising wedge pattern during the past few weeks. This is a bearish pattern and is marked in purple color in the daily chart. The stock is currently near the top of this rising wedge pattern. If the stock breaks down from the bottom of the rising wedge pattern, it can move lower in the near-term.
#2 Doji: The latest candle is a Doji with a long upper shadow. This candle indicates indecision between buyers and sellers. The stock also closed well down from the day’s high. This is a possible bearish sign.
This indicates the stock may move lower.
#4 CCI Moving Down: The CCI is currently moving down after crossing above 200.
This usually means that the stock may reverse to downside soon.
#5 Bearish Divergence between RSI and Stochastic: The weekly chart shows that there is a bearish divergence between RSI and stochastic.
This is marked as red dotted lines. While the price was making higher highs, stochastic was forming lower highs. This is a possible bearish sign. The stochastic in the weekly chart is also currently near overbought levels, indicating possible bearishness.
#7 Overbought RSI: The RSI is near overbought levels on the weekly chart, indicating bearishness.
#8 CCI moving down: CCI is above 100 and moving down in the weekly chart, indicating bearishness.
The stock is also near a long-term resistance level (marked as an orange dotted line). This seems like a good supply area. Historically, the stock had crossed this level after many attempts. Currently, the stock is trading below this level.
Recommended Trade (based on the charts)
Sell Levels: If you want to get in on this trade, the ideal sell level for CRZO is at the current price of around $30.
TP: Our target prices are $25 and $18 in the next 3-6 months.
SL: To limit risk, place a stop loss at $33. Note that this stop loss is on a closing basis.
Our target potential downside is 17% to 40% in the next 3-6 months. For a risk of $3.00, our target rewards are $5.00 and $12.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Risks to Consider
The stock may reverse its overall trend if it breaks upwards from the rising wedge pattern with high volume. The breakout of the stock could also be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.